How Geopolitics Broke the 60/40 Portfolio: Europe’s Hard Investing Lessons (2022–2026)

These aren't just market results. They show how a series of geopolitical crises forced ordinary people to rethink how they protect their savings.

The old rules stopped working

For years, investing seemed relatively straightforward. If stock markets became volatile, bonds were supposed to soften the blow. Financial advisers often recommended balanced portfolios because history suggested they could survive almost any downturn.

That logic failed in 2022.

Russia's full-scale invasion of Ukraine sent energy prices soaring across Europe. Inflation climbed above 11%, reaching levels many Europeans had not experienced for decades. To bring prices under control, the European Central Bank and the U.S. Federal Reserve raised interest rates aggressively until late 2023.

The result surprised many investors.

Stocks fell. Bonds also lost value.

The traditional "safe" part of the portfolio stopped providing protection just when people needed it most. Even though bond prices recovered somewhat from 2024 onwards, the damage from the previous two years was too large. By mid-2026, global bond ETFs had produced almost no gain over the entire four-year period. Investors focused only on Eurozone government bonds did even worse.

Inflation pushed Italians to change their habits

Markets weren't the only thing changing.

Italian households also began making different financial decisions.

Before 2022, many families preferred leaving their money in bank deposits. Years of extremely low interest rates offered little reason to invest elsewhere.

Inflation changed that almost overnight.

Money sitting in a savings account steadily lost purchasing power while everyday expenses kept rising. Keeping cash suddenly became expensive.

Many households reacted by moving their savings into investment funds or buying government bonds directly. Bond holdings in Italian household portfolios doubled during this period.

This wasn't driven by optimism about financial markets. It was a practical attempt to stop inflation from eating away at personal wealth.

Italy found a way to attract domestic savings

One of the biggest winners was not a company but the Italian government.

Rome expanded the sale of inflation-linked bonds aimed specifically at retail investors, particularly BTP Italia. These bonds offered households protection against rising prices while helping the government raise money at a time when international investors had become more cautious.

It proved to be a successful strategy.

Instead of relying mainly on global financial markets, Italy encouraged its own citizens to finance part of the country's borrowing needs.

That says something important about how governments are adapting to a more uncertain world. Domestic savings are becoming a strategic resource rather than simply private wealth sitting in bank accounts.

Milan became the surprise winner

Perhaps the biggest shock was the performance of the Milan Stock Exchange.

Many investors expected American technology companies to dominate once again. Instead, Italy's market delivered even stronger returns.

The reason had less to do with excitement than with interest rates.

European banks had struggled for years while rates remained close to zero. When borrowing costs increased, banks suddenly earned much larger margins on lending. Because financial companies make up a large share of Italy's stock market, stronger bank profits lifted the entire exchange.

The result was remarkable. Milan reached levels not seen since the dot-com era more than 25 years ago.

It also challenged the assumption that Europe's mature stock markets were destined to trail the United States indefinitely.

AI kept technology booming

That doesn't mean technology lost its appeal.

The arrival of commercial artificial intelligence at the end of 2022 sparked one of the strongest rallies the sector has seen in years. The Nasdaq-100 almost doubled during the four-year period.

Normally, higher interest rates make life harder for fast-growing technology companies. Investors tend to value future profits less when borrowing becomes more expensive.

AI changed that calculation.

The belief that artificial intelligence could reshape entire industries convinced investors to keep buying technology shares despite higher rates.

Even the sharp market reaction after the Trump administration announced broad import tariffs in April 2025 lasted only a few days before the rally resumed.

Gold reminded investors why it matters

Gold also returned to the spotlight.

The metal gained around 100% despite a noticeable correction near the end of the period.

Its performance wasn't driven by excitement over new technology or improving company profits. Investors bought gold because the world looked increasingly unstable.

The war in Ukraine, tensions in the Middle East, and disruptions to global trade all strengthened demand for assets that are traditionally viewed as safe during periods of uncertainty.

More than an investment story

The biggest lesson from the past four years is not that Italian stocks beat American technology or that gold outperformed bonds.

It is the case that the economic environment has changed.

Before 2022, investors grew used to low inflation, cheap money and relatively stable global trade. That world has become harder to recognise. Wars, supply-chain disruptions, and higher energy costs have made inflation much more difficult to control. Central banks have had to keep interest rates high for longer than many expected.

That has changed how governments borrow money, how households save, and how investors think about risk.

The biggest loser was not a particular fund or asset class. It was the belief that simply following the old investment playbook would be enough.

Between 2022 and 2026, preserving wealth required something many ordinary savers had never needed before: actively responding to a world where geopolitics mattered just as much as economics.

Sources: Il Sole 24 Ore.